The Las Vegas Sun wonders, “Your next landlord in Las Vegas could be a hedge fund.” Hedge funds have been contacting real estate brokers in Sin City to discuss buying up single-family residential properties to use as rental properties. The idea is that hedge funds can buy relatively new homogenous tract houses for $100,000 a piece, spruce ‘em up for $10,000 to $25,000, rent them out for $1,200 a month, and bang out an 8% to 12% return. Sounds easy. After all, forget the “ownership society” we now have a “rentership society” says Oliver Change at Morgan Stanley. J. Patrick Coolican writes,
between 2005 and 2011, the number of families in Florida, Arizona and Nevada renting a single-family home has increased 67 percent, according to Dennis McGill of the firm Zelman & Associates. Meanwhile, the homeownership rate here continues to plummet toward 50 percent.
In the best of times collecting rent is a little more labor intensive than clipping bond coupons or collecting stock dividends. With the official rate of unemployment in Las Vegas being 12.7%, collecting rent will require a “personal touch.”
Despite the housing market being in a funk since 2007, it’s possible the hedge funds are still a little early. Hubble Smith reported for the Las Vegas Review Journal from last weeks Crystal Ball seminar that SalesTraq’s Larry Murphy told those attended that he thought home prices would decrease another 10% in 2012. Two-thirds of the homes in LV are underwater and it’s Murphy’s view,
“Pretty certainly, I can tell you we’re going to have another 100,000 foreclosures (over the next five years) because about one-fourth of our housing stock is still in default.”
“It’s just another distressed asset,” says Robert Lang, director of Brookings Mountain West and a real estate expert tells the Sun. Housing in Vegas is distressed for sure. But is that housing market undervalued?
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Hedge funds buying illiquid assets reaching for “easy yield”… there’s no possible way this will backfire.
who is going to bid $1200/mo to live in vegas? that would get you a single-family worth a bit more than $100k in dallas. it would not need sprucing up, either. there are certainly more jobs in dallas than vegas.
The risk here is not only the loss of principal if housing prices continue to fall, it’s the loss of income if there is a high vacancy rate in the rental market and the properties sit empty.
The gaming industry is going to drive the economy here. Most of the people who live in Las Vegas depend on gaming industry to drive the economy. The problem is that the Federal Government is hostile to the gaming industry. Steve Wynn does not see any future there. Wealthy Asian gamblers are going to Macau. Retired US patrons have seen their net worth and income drop and are staying away. Then we have Obamacare and Labor Unions and Harry Reid. No reason to live in Vegas if you don’t have a job.
Where else you gonna get 8-12% return on a 30-50% undervalued asset?
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